Econ281-Beesley-F08-MT1-with-Key-1

# Econ281-Beesley-F08-MT1-with-Key-1 - Economics 281 Q1...

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Economics 281 Q1 Midterm 1 Fall 2008 Name: __________________________ Student Number: _____________ 1. Identifying the appropriate way to allocate an economy's resources is an example of A) a constrained optimization problem. B) a comparative statics problem. C) an equilibrium analysis. D) marginal analysis. 2. Suppose the price of A is \$3, the price of B is \$5, the consumer's income is \$30, and the consumer's level of satisfaction is measured by A + B . The consumer's income constraint is A) max 3 A + 5 B B) max A + B C) A + B 30 D) 3 A + 5 B 30 3. Identify the truthfulness of the following statements: I. Marginal analysis can explain why you would always choose to eat Chinese food rather than pizza. II. Marginal analysis can explain the incremental impact of an increase in total cost when one more unit of output is produced. A) Both I and II are true. B) Both I and II are false. C) I is true; II is false. D) I is false; II is true. 4. Which of the following statements about positive analysis is correct? A) Positive analysis prescribes the best solution to an economic problem. B) Positive analysis predicts how an economic system will change over time. C) While normative analysis can be wrong, since it is often based on someone's opinion, positive analysis is always accurate. D) Since positive analysis is based on a model, and not the real world, it is mostly irrelevant. Page 1

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5. Currently, 100,000 units of a good are traded on a market. The government imposes a limit of a maximum of 50,000 units that may be traded on the market. This will: A) create excess supply. B) create excess demand. C) raise price D) have no effect on the market. 6. Suppose the equilibrium price in a market is \$5, and the government imposes a \$4.50 price floor on the market. This will A) create excess supply. B) create excess demand. C) shift the demand curve to the right. D) have no effect on the market. 7. What is the difference between a derived demand curve and a direct demand curve? A) Derived demand is unknown, whereas direct demand is known. B) Derived demand is unobservable, whereas direct demand is observable. C) Derived demand is demand determined by the demand for another good, whereas direct demand is demand for a good itself. D) Derived and direct demand are both terms referring to the same thing. 8. Suppose in a market with Q d = 100 - 5P and Q s = 5P , the government imposes a price floor of \$15. If the government is required to purchase any excess supply at the price floor, how much will the government have to pay to purchase the excess in this market? A) Nothing; there is no surplus B) \$1,000 C) \$1,500 D) \$750 9. Suppose demand is given by Q d = 500 – 15P and supply is given by Q s = 5P . If the government imposes a \$30 price floor the excess supply will be A) 25 B) 50 C) 100 D) 150 Page 2
10. Suppose that demand is linear, Q d = 100 – 12P . At P = 5 and Q = 40, price elasticity of demand is: A) -2/3 B) –2 C) -12 D) –3/2 11. Which of the following statements is true?

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Econ281-Beesley-F08-MT1-with-Key-1 - Economics 281 Q1...

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